T-Mobile's $26.5B Sprint deal OK'd despite competition fears

WASHINGTON (AP) — U.S. regulators have approved T-Mobile's $26.5 billion takeover of rival Sprint, despite fears of higher prices and job cuts, in a deal that would leave just three major cellphone companies in the country.

Signage for a Sprint store in New York's Herald Square, top, and signage at a T-Mobile store in New York. Texas is joining more than a dozen states suing to stop T-Mobile’s $26.5 billion takeover of rival cellphone company Sprint, arguing that the deal is bad for consumers because it would reduce competition.

July 26, 2019

Friday's approval from the Justice Department and five state attorneys general comes after Sprint and T-Mobile agreed to conditions that would set up satellite-TV provider Dish as a smaller rival to Verizon, AT&T and the combined T-Mobile-Sprint company. The Justice Department's antitrust chief, Makan Delrahim, said the conditions set up Dish "as a disruptive force in wireless."

But attorneys general from other states and public-interest advocates say that Dish is hardly a replacement for Sprint as a stand-alone company and that the conditions fail to address the competitive harm the deal causes: higher prices, job losses and fewer choices for consumers.

"By signing off on this merger, the Justice Department has done nothing to remedy the short- and long-term harms the loss of an independent Sprint will create for U.S. wireless users," said S. Derek Turner, research director for the advocacy group Free Press.

A federal judge still must sign off on the approval, as the two companies' settlement with Justice includes conditions for them. The Federal Communications Commission is expected to also give the takeover its blessing.

Dish is paying $5 billion for Sprint's prepaid cellphone brands including Boost and Virgin Mobile — about 9 million customers — and some spectrum, or airwaves for wireless service, from the two companies. Dish will also be able to rent T-Mobile's network for seven years while it builds its own.

Dish on Friday promised the FCC that it would build a nationwide network using next-generation "5G" technology by June 2023. But Dish is promising speeds that are only slightly higher than what's typical today, even though 5G promises the potential for blazing speeds.

The Trump administration has not been consistent in its approach to media and telecom mergers. While the government went to court to block AT&T's acquisition of Time Warner and then lost, the Justice Department allowed Disney to buy much of 21st Century Fox, a direct competitor, with only minor asset sales to get the deal done. Mergers between direct competitors have historically had a higher bar to clear at the Justice Department.

Sprint and T-Mobile combined would now approach the size of Verizon and AT&T. The companies have argued that bulking up will mean a better next-generation "5G" wireless network than either could build on its own. Sprint and T-Mobile have argued for over a year that having one big company to challenge AT&T and Verizon, rather than two smaller companies, will be better for U.S. consumers.

The two companies tried to combine during the Obama administration but regulators rebuffed them. They resumed talks on combining once President Donald Trump took office, hoping for more industry-friendly regulators. The companies appealed to Trump's desire for the U.S. to "win" a global 5G race with China.

Meanwhile, the FCC agreed in May to back the deal after T-Mobile promised to build out rural broadband and 5G to nearly all the country, sell its Boost prepaid brand and keep prices on hold for three years.

But attorneys general from 13 states and the District of Columbia — separate from the five states that approved the deal — have filed a lawsuit to block the deal . They say the promised benefits, such as better networks in rural areas and faster service overall, cannot be verified. They also worry that eliminating a major wireless company will immediately harm consumers by reducing competition and driving up prices for cellphone service.

"We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger's harm to consumers, workers, and innovation," New York Attorney General Letitia James said in a statement.

T-Mobile CEO John Legere said Friday that he believes the deal can close by the end of the year and that the company will engage with the state attorneys general who oppose the deal. Dish is largely a company with a declining satellite-TV business. It has no wireless business, but over the past decade it has spent more than $21 billion accumulating a large stock of spectrum for wireless service. The wireless industry has long been skeptical of Dish's ambitions to actually build a wireless service, instead speculating that the company wanted to make money by selling its holdings to other companies.

Recon Analytics founder Roger Entner, a longtime telecom analyst, said the settlement was good for T-Mobile, AT&T and Verizon, as a weak competitor in Sprint is being replaced by an even weaker one in Dish.

Sprint, the current No. 4 wireless provider, has thousands of stores and other distribution points as well as a cellular network. Dish has none of that, although the settlement gives it the option of taking over some stores and cell sites that T-Mobile ditches over the next five years. Creating and maintaining a retail operation and network cost tens of billions of dollars, Entner said. He doubts that Dish could do that alone, as its core business is in deep decline, or that Dish could find a wealthier company to help it do so.

But New Street Research analysts say Dish could build a lower-cost network and provide cheaper plans for customers. Still, that could take years. There are incentives built into the agreement that would keep Dish from sitting on spectrum assets rather than building them out into a network, Delrahim said. If the company doesn't live up to its promises, it will face billions of dollars in penalties.

George Slover, senior policy counsel for Consumer Reports, also said that the current structure of four competing providers works. He said it's not the same to diminish that while enabling a competitor that doesn't currently have the infrastructure.

"Dish might become a competing network at some point but it's not there now," he said. The Communications Workers of America, a union that represents telecom workers, says that the deal will kill 30,000 jobs and weigh on workers' wages.

T-Mobile's stock jumped more than 5% Friday, while Sprint shares rose more than 7%. Dish shares added less than 1%. Verizon and AT&T shares also climbed. Japanese tech conglomerate SoftBank owns Sprint, while Germany's Deutsche Telekom owns T-Mobile. SoftBank will continue to own 27 percent of the new, bigger T-Mobile and will keep some influence, but it will not control the company.

Arbel reported from New York. AP Technology Writer Mae Anderson contributed to this report from New York.